Why has chemical fertilizer off-season storage decreased for the first time?
Since China established the commercial off-season storage system for chemical fertilizer in 2004, the volume of off-season chemical fertilizer storage had only increased and never decreased, rising from 800 million tons at the beginning to 1800 million tons in 2013, with an average annual growth of 125%. However, this year the volume of off-season chemical fertilizer storage fell for the first time. In this round, storage enterprises with an off-season chemical fertilizer storage volume of 50000 tons or less made no change, those with 100000 to 200000 tons reduced their contracted storage volume by 20%, and those with more than 200000 tons reduced their contracted storage volume by 25%.
Why has off-season chemical fertilizer storage decreased? There are three main reasons:
First, major changes have taken place in the supply and demand situation for chemical fertilizer. When China established the off-season chemical fertilizer storage system, domestic chemical fertilizer output was limited at the time, and manufacturers needed to maintain production even in the off-season. Otherwise, in the peak season for farmers' spring plowing the following year, chemical fertilizer supply might fall short of demand and affect spring plowing production, or during spring plowing the tight supply of chemical fertilizer might sharply drive up chemical fertilizer prices and harm farmers' interests. But now China's chemical fertilizer output has increased substantially and is fully able to meet domestic demand; a large volume of chemical fertilizer exports is still needed to maintain a balance between production and sales. Therefore, the role of off-season chemical fertilizer storage in ensuring supply has declined somewhat, and the scale of off-season storage should decline.
Second, the negative effects of off-season storage on the market are gradually emerging. Large-scale off-season chemical fertilizer storage distorts the market's supply-demand relationship. In the off-season, it causes the supply of chemical fertilizer to become relatively tight, pushing prices artificially high; in the peak season, because of concentrated selling, chemical fertilizer prices often fall again, creating the abnormal phenomenon that chemical fertilizer prices in the off-season are even higher than in the peak season. This not only causes losses for off-season storage enterprises, but also leaves farmers at a loss as to what to do. In recent years, the negative effects of off-season chemical fertilizer storage on the market have continued to increase, and some experts have even proposed abolishing off-season chemical fertilizer storage.
Third, dealers' enthusiasm for off-season storage has declined. According to dealers, the interest subsidy granted by the state for off-season chemical fertilizer storage is far lower than enterprises' storage costs and is insufficient to cover enterprises' operating costs. During the entire off-season storage period, the cost per ton is 110 yuan, and the interest on bank loans accounts for only 32% of the total cost, while 68% receives no state subsidy. In addition, a large number of small and medium-sized dealers, because they did not win bids, cannot get subsidies, and they bear greater risks in off-season chemical fertilizer storage. In recent years, it has often happened that chemical fertilizer prices in the off-season are even higher than in the peak season, causing losses for dealers undertaking off-season storage tasks, and dealers' enthusiasm for contracted storage has clearly declined compared with previous years.
However, the author believes that off-season chemical fertilizer storage should not be abolished in a short period of time, and that reducing the scale of off-season chemical fertilizer storage is the correct choice. This is because the benefits of chemical fertilizer enterprises are currently constrained by structural overcapacity, and enterprise operating rates are not high; for example, the operating rate of urea enterprises fell from 80% last year to below 70% this year. If off-season chemical fertilizer storage were abolished all at once, more dealers would wait and see, and in the off-season the products produced by chemical fertilizer manufacturers would have nowhere to go and could only be continuously reduced in price, making enterprise losses even more severe and possibly even forcing many chemical fertilizer manufacturers to suspend production, which would inevitably have an adverse impact on chemical fertilizer supply for spring plowing the following year.
Overall, the off-season chemical fertilizer storage system has played an important role in China's spring plowing production, but reform should continue, and a method of “small steps and slow adjustment” is better; it should not be rushed. Agricultural production concerns national security, and chemical fertilizer production, as an important part of agricultural production, cannot undergo major fluctuations. Some experts suggest that, after gradual reductions or adjustments to bidding methods and other aspects, consideration can then be given to gradually abolishing off-season chemical fertilizer storage.